In a significant move for the US oil and natural gas pipeline sector, Oneok Inc. has agreed to acquire Magellan Midstream Partners LP in a cash-and-stock deal valued at $18.8 billion. This strategic transaction would make the combined entity one of the largest pipeline operators in the country.
Under the terms of the agreement, each Magellan stakeholder will receive $25 in cash and 0.667 shares of Oneok stock per unit, a 22% premium to the closing prices on May 12, according to a joint statement released by both companies on Sunday. The acquisition comprises $8.8 billion in new equity and the assumption of $5 billion in existing net debt.
Pipeline operators are increasingly seeking growth through acquisitions as the energy transition to renewables reduces the need for new infrastructure and threatens to render some existing assets obsolete. The deal provides Oneok, currently a transporter of natural gas and its byproducts, with access to Magellan’s expansive network of crude oil and refined products pipelines and terminals that span from Texas to Minnesota.
The combined firm will boast a total enterprise value of $60 billion, making it one of the five largest US pipeline operators by that measure, as per data compiled by Bloomberg.
Raymond James Financial Inc. analysts J.R. Weston and Justin Jenkins described the move as a bold step that shifts the long-term strategies of both firms, enhancing the scale and diversification of the combined entity. Despite the high price tag for Oneok, they indicated the deal could still prove beneficial due to the value of consolidation in the midstream sector.
Oneok shares dipped 5.6% in pre-market trading in New York, while Magellan units experienced a surge of over 15%.
For Magellan, this transaction offers an opportunity to exit the master limited partnership (MLP) structure at a higher premium compared to recent transactions involving its peers, says Timm Schneider of The Schneider Capital Group. MLPs have fallen out of favor among investors following the crude-market crash of 2014-2016 and changes in US tax policy.
Subject to shareholder and regulatory approvals, the transaction is projected to close during the third quarter. Oneok has secured $5.25 billion in bridge financing fully committed to the cash portion of the deal. The company anticipates that the acquisition will positively impact per-share earnings and free cash flow. Both Oneok and Magellan are based in Tulsa, Oklahoma.
